“The Indifference Principle” is an explanation economists have invented to describe how people make assessments of value to determine the prices they are willing to pay for goods and services.
Economists need and use a theory of how people value to anticipate how people will act in an economy or marketplace.
Ambitious businesspeople need and use the theory to produce new offers, practices, narratives and strategies, or new goods and services, so that they will be highly valued.
Only by designing new offers that avoid triggering indifference to their value can ambitious businesspeople:
Earn, save and invest enough money to survive, be free and live a good life throughout 40 years of adulthood and 25+ years of old age
Produce and maintain competitive advantages, superior value and top 1% annual incomes
Produce a steady stream of new, uncommon, strategic and superior offers, practices, narratives and strategies
Economic theory is counterintuitive to ordinary businesspeople
Economic theory is counterintuitive to ordinary people who are used to thinking that their assessments of value are applicable to others or representative of “real” values. It doesn’t match the way ordinary people make assessments of value about everything and anything they want, need, desire, wish for, etc.
To people who think value is objective, “real” or that, like pornography, they know it when they see it, economic theory about how people assess value to determine the prices they are willing to pay makes no sense, at first.
Economists had to confront the truth that “value” is an assessment and not an objective fact anyone can see or that everyone is forced by reality’s operations, such as gravity or our need to eat, to accept. No quantifiable ingredient, characterization or quality makes one good or service inherently more valuable than another.
What’s more, economists had to reconcile the fact that people often place a high value on goods or services without apparent or good reason, while at the same time placing low value on goods and services that reason would dictate should have a high value.
This dilemma is made clear by the high price people are willing to pay for diamonds, which do nothing to aid in survival, and the low prices they insist on paying for bread, which they need to survive.
People will pay high prices for fancy clothes that do nothing to keep them warm or comfortable. But they are unwilling to pay a lot for clothing that is purely functional.
“The Indifference Principle” claims that
All activities, goods and services must be equally valued, except those performed by people with unusual talents or by those with unusual tastes
The Indifference Principle is a corollary of “The Principle of Marginal Utilities”, which is another and more fundamental claim about how people assess value.
A “corollary” is a claim or proposition that follows another, usually more senior, one that needs no additional explanation or grounding to prove.
The Principle of Marginal Utilities claims, or notices for us, that rational people assess value on the margins of an offer, practice, narrative, strategy, good or service.
The “margin” of an offer made to people in the marketplace is the small incremental change people make to a common offer.
A loaf of bread…
Marginal utilities may be incremental, but that doesn’t mean they are small, trivial, unimportant, useless or not worth an enormous premium.
If we are speaking about a loaf of bread, the marginal utility of a new offer is the small, incremental difference or improvement the baker makes.
If common loaves are pure grain and the baker adds raisins, the raisins are the marginal utility.
The “value” of the marginal utility is people’s assessments of its importance, utility and worth taking care of concerns, producing situations and acquiring capacities to think and act effectively.
The “price” they are willing to pay depends on their concerns, situations, capabilities, narratives, moods, etc.
The bread metaphor lets us see another dimension of how marginal utilities produce and lose value:
Take a family of 4, give them each one slice of bread for dinner and they will be hungry, uncomfortable and, perhaps, sick.
They will pay any price they can afford to get enough food to eat.
If we increase their portion of bread marginally from one slice to two slices, they will be much happier but still very hungry, and the price they will be willing to pay for more bread will still be very high.
The marginal utility of an extra slice of bread when people’s starting position is starvation is very high.
But if we give an extra slice of bread to a well-fed family that already has 30 extra slices, the value of the marginal utility will be low or non-existent.
People with a surplus of something common will not pay much, if anything, for more.
Fundamental Claims and Strategies for top 1%
The Indifference Principle focuses our attention on the fact that no inherent difference in value exists between one good, service or offer, and another.
The Principle of Marginal Utilities shows us that people look to the marginal differences between common goods, services and offers to assess value and determine willingness to pay for them.
Together the two principles make the following claims:
#1 – The value of anything common will be treated indifferently because the value of anything is the same as anything else.
#2 – The value of anything people may need to survive, be free and live a good life — and avoid suffering, pain, illness, isolation, existential despair and early death — is assessed at the margin of the offer where the incremental differences distinguish one fundamental and common good, service or offer from another.
#3 – Assessments about the value of marginal utilities is what people use to determine their willingness to pay for them.
Together, the two principles lead to the following fundamental strategies for producing or increasing value and people’s willingness to pay a premium for goods, services and offers:
#1 – Anticipate indifference to value, and unwillingness to pay a premium, for common offers, practices, narratives and strategies.
#2 – Anticipate that common offers, etc. you make will always trigger indifference to value, and pricing to pay the lowest price possible.
#3 – Avoid making common offers, practices, narratives or strategies when attempting to produce premiums or top 1% annual incomes.
#4 – Force customers, employers, employees and colleagues to assess value, and consider paying a premium by always designing offers, practices, narratives and strategies with marginal utilities that are uncommon, or scarce relative to demand.
#5 – Force people to pay a high premium (in addition to assessing value) by designing and producing marginal utilities that are:
Important
So the consequences of paying a premium are so good and the consequences of declining are so bad, people’s willingness to pay increases
Useful
So their “real” effects on concerns, situations and capacities in people’s environments of threats, obligations and opportunities are so potent and robust they cannot imagine going with the lower-priced and more common alternative
Worthwhile
So the returns on the time, energy, money and lost opportunities are so high, and so much higher than the generic and common alternative, their willingness becomes eagerness, enthusiasm and passion
Produce marginal utilities by learning fundamental philosophies, principles, laws and mechanisms that are in operation at all times and under all circumstances, first.
Continually improve your current offers, practices, narratives and strategies incrementally, unless no way exists to produce a marginal utility that will matter enough to fulfill your ambitions.
If no way exists to produce important, useful and worthwhile marginal utilities you must QUIT:
Making the offer
Performing the practice
Speaking the narrative
Executing the strategy
Continually design new, uncommon, strategic and superior offers, practices, narratives and strategies by producing marginal utilities for fundamental, and sometimes common, ones.
To produce a “long run” with an offer, practice, narrative or strategy, which is an offer that maintains its high value and low costs for a long time, produce one with many possibilities and opportunities for many incremental improvements.
Together, The Indifference Principle and The Principle of Marginal Utilities explain why people who use common sense and common knowledge to make common offers are always “squished” into the bottom 99% of the marketplace in terms of annual incomes, identities, leadership roles and business organizations.
The marketplace is as indifferent to people’s value as it is to the goods, services and offers they make,
… when their offers and practices produce no marginal value.